Stafford Loans are given by the U.S. Department of Education to students in colleges and universities to pay for education. These loans are given to pay for only education related expenses. These include tuition, fees, room and board, transport, books, supplies and buying a computer. The college or university must participate in the Direct Loan Program.
Stafford loans offer low interest rates. The loan can be subsidized by the Federal Government or it can be unsubsidized. Subsidized loans offer 3.4% while unsubsidized loans offer 6.8% interest rates. Any student can apply whether undergraduate, graduate or professional regardless of their credit. This gives everyone a chance to study. Students are not required to pay when in school unless they drop below half-time enrollment.
To become eligible the student must fill the FAFSA form and meet the requirements. Dependent students complete the form without their family details.
Subsidized Stafford loans are the most affordable loans with a very low interest rate and the loan is subsidized by the government. This means that, interest does not accrue during the time the student is in school, during the 6-month grace period and during the time the loan is deferred. However this is a need-based loan and the college or university has to certify the amount the student is entitled to. The students are given a grace period of 6 months after the student graduates or withdraws from college or university or when the student enrolls below half-time. These loans are very attractive because they give the students peace of mind when they are studying and a 6-month grace period to look for a job and organize finances before starting to repay the loan.
The loan limits of the subsidized Stafford Loans are-:
First year: 3,500
Second year: 4,500
Third year onwards: 5,500
This applies to both dependent and independent students.
Unsubsidized Stafford Loans which are not need-based. They attract an interest rate of 6.8%. Since they are not subsidized they start accruing interest when the Loan is paid when the student is still in college or university. The students can start paying the interest while in school or defer it to the time they graduate. The interest is added on the principal and the student will have to pay more interest in total because the interest will be charged on the higher amount after graduation. The unsubsidized Stafford Loans are 2,000 for every year for dependent students. For independent students they can borrow 6,000 for the first and second year and 7,000 for third year and beyond.
Dependent students have a lifetime limit of 31,000 of which 23,000 may be subsidized. Independent students can apply for a lifetime limit of 57,500.
Stafford Graduate Loans may be subsidized or unsubsidized and they all have an interest rate of 6.8%. The loans have an annual loan limit of 8,500 subsidized and 12,000 unsubsidized. Graduates or professionals have a lifetime limit of 138,500 (and 224,000 for health professionals) of which 65,000 may be subsidized.